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Shares of China Huishan Dairy Holdings Co were suspended on Friday after Carson Block’s Muddy Watters Capital LLC said the company is “worth close to zero” and questioned its profitability.
In a Bloomberg report, Muddy Watters has alleged that the company had been overstating its spending on its cow farms by as much as 1.6bn yuan (€220m) to support the company’s income statement.”
The report also suggests that the company transferred four farms to a subsidiary company controlled by Yang Kai, who is Huishan chair.
Red flag
However, Robin Yuen, a Hong Kong financial analyst, said: “It will be even harder for Huishan to get funded in the capital market after this report, amid a couple of earlier allegations that have raised red flags to investors.”
He also said Huishan shares are unlikely to collapse due to its high share concentration and sufficient cashflow generated by its dairy business.
In order to raise capital, the company has already entered into agreements to sell assets including property, equipment and up to 40,000 cows to leasing companies in a rent-back deal.
China Mengniu, China’s second-largest dairy company, issued its own profit warning last week, saying it expected to record a substantial loss for 2016 due to selling excessive milk powder at market price, suffering a loss, during the slump in dairy product prices.
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